Top 10 Pitfalls in Dealing with the RPA – Listing Agent

Listed below are Ten issues for Listing Agents to pay particular attention to when dealing with a residential sale.  They are listed in no particular order. This list is not meant as an exhaustive list of all issues that the Listing agent should evaluate, but rather focuses in on the particular areas that often create confusion and misunderstandings.

1.  Importance of Obtaining a Termite Inspection Report BEFORE receiving offers

Most offers submitted on residential properties include the Wood Destroying Pest Addendum and most of the time the seller is asked to complete at least the Section 1 Termite work in said addendum.  If the seller has not obtained a termite inspection report before the submission of an offer, the seller is in the position of agreeing to pay for Section 1 Termite work without any idea as to the extent of work that might be required.    Obtaining the Termite Inspection report before the offer is submitted eliminates this uncertainly and places the seller in the position of certainty when making a decision regarding paying for termite work.

2.  Closing Costs

Very often, the buyer’s agent will put a clause in the Purchase Agreement requesting that the Seller credit the buyer for buyer’s closing costs.  Many lenders will allow sellers to credit buyers up to 3% of the purchase price towards buyers closing costs.  Herein lies the rub.  While the lender may indicate that the seller is permitted to pay up to 3% of the purchase price towards closing costs, when the actual closing costs are determined, often this amount is less than the 3% approved in the Purchase Agreement.  This often creates a misunderstanding between buyer and seller.  Buyer assumes that buyer will receive this 3% regardless of the actual closing costs incurred.  The seller assumes that seller is only responsible for buyer’s actual closing costs.  The agents can avoid this misunderstanding with the use of more precise language in dealing with credits for closing costs.  Often, the language used is “Seller shall credit buyer 3% towards buyer’s closing costs” or “Seller shall credit buyer up to 3% towards buyer’s closing costs.  It is suggested that this be expanded to state the following:  “Seller shall credit buyer up to a maximum of 3% of the purchase price towards buyer’s closing costs.  However, in the event that buyer’s closing costs turn out to be less that said amount, seller shall only be responsible for the actual amount of buyer’s closing costs.

Normally, the request for the closing costs credit would be contained in paragraph 3D of the C.A.R. Residential Purchase Agreement.  However, the listing agent should be careful to check through the entire Purchase Agreement to make sure this credit isn’t contained elsewhere (i.e. Paragraph 11-Other Terms).

3.  Loan Contingency

Paragraph 3H(3) of the C.A.R Residential Purchase Agreement deals with removal of the buyer’s loan contingency.  The listing agent should pay particular attention to how this paragraph has been filled out.  If the offer has box 3H(3)(ii) checked, which indicates that the loan contingency shall remain in effect until the designated loans are funded, the listing agent should consider countering this provision to have a specific time frame for removal of the loan contingency.  It is not in the best interest of the seller to have a loan contingency in place for the entire duration of the escrow.

4.  Personal Property Included or Excluded from Sale

Paragraph 8 of the C.A.R. Residential Purchase Agreement deals with the issue of items included and excluded from the sale.  Many disputes develop over stoves, refrigerators, home entertainment systems, light fixtures, etc.    Any fixtures that the seller wishes to exclude from the purchase must be agreed to, in writing, either in the offer, counter offer, or other document signed by both buyer and seller.  As noted in the Purchase Agreement, the fact that the MLS Information Sheet, or a property flyer, lists an item as excluded from the sale, does not create a binding agreement between the parties.  It is important for the Listing Agent to verify that any fixtures that the Seller wishes to exempt from the sale, are put in writing and agreed to by buyer and seller.    Free standing stoves often become the subject of a dispute because buyers tend to assume that stoves stay with the property.  The buyer may not realize that the stove is free standing.  It is always best to spell it out so that no misunderstanding develops.  Excluding the stove in writing should eliminate the possibility of a problem later on down the road.

5. Deposit

While the amount of the deposit is negotiable between buyer and seller, it is generally in the best interest of the Seller to get a reasonable deposit amount.  If the Liquidated Damages provision is initialed by all parties, and if the deposit is very small, that may very well be the only amount the Seller can retain should the buyer breach the contract.  If the buyer is aware that there is only a small amount at risk in case of buyer’s default, the buyer might be more likely to breach the contract knowing that the consequences would be minor.

6.  Buyer’s use of Assignee or Nominee

Occasionally, an offer is written indicating that the buyer is John Doe or assignee.  While there may be a legitimate reason for using the term assignee or nominee, the seller should be protected from the buyer simply choosing to assign the buyer’s interest to a non qualifying party.  The listing agent would be wise to eliminate the assignee or nominee altogether or set a specific time frame for buyer to name the assignee.

7.  Arbitration Clause

The Arbitration of Disputes paragraph in the Purchase Agreement creates a difficult situation for both listing and selling agents.  Buyers and sellers will often ask their agent whether they should initial the Arbitration of Disputes paragraph.  Providing a yes or no answer could be interpreted as practicing law and an agent should not be engaging in the practice of law.  So what is the Listing agent expected to do with regard to this paragraph?  The good news is that most agents use the CAR Statewide Buyer and Seller Advisory form along with the Purchase Agreement.  Paragraph 49 of that addendum has an excellent explanation of the Arbitration Process.  It is suggested that you advise your client to carefully review Paragraph 49 of this addendum and read the Arbitration of Disputes paragraph in the Purchase Agreement.  Upon reviewing these 2 paragraphs, the client should have a better understanding of the Arbitration of Disputes paragraph.  If they still have questions regarding this issue, they should be directed to obtain legal advice regarding whether or not to initial said paragraph.

8.  Liquidated Damages Clause

The Liquidated Damages paragraph in the Purchase Agreement presents the same difficult situation for both listing and selling agents.  Buyers and sellers will often ask their agent whether they should initial the Liquidated Damages paragraph.  Once again, a yes or no answer would put the agent in a position of providing legal advice.  The agent should recommend that the client read paragraph 47 of the aforementioned Statewide Buyer and Seller Advisory form.  In addition, the client should carefully read the entire Liquidated Damages Paragraph in the Purchase Agreement.  Initialing this paragraph could have significant legal consequences in the event of a breach of contract by the buyer.  If the client cannot decide whether or not to initial this paragraph, they should be advised to contact legal counsel for an explanation of the possible legal ramifications of having said paragraph initialed or not.

9.  Notification to Buyer’s Agent and Buyer of Rejected Offer

Buyers and buyer’s agents sometimes question whether the listing agent has presented an offer to the seller.    This can create unpleasant confrontations and unhappy clients.  It is strongly recommended that the listing agent take advantage of the two boxes contained at the bottom of page 8 of the C.A.R. Residential Purchase Agreement.  The first box, “Presentation of Offer”, allows the listing agent to indicate when the offer was presented to the seller and calls for the initials of the listing agent.  The second box, “Rejection of Offer”, states that no counter offer is being made and the offer was rejected by the Seller.  It has a place for the seller’s initials and the date.  By using these two boxes, the listing agent can communicate with the buyer’s agent and buyer to indicate that the offer was, in fact, presented to the seller.

10.  Contingency Removal

The C.A.R. Residential Purchase Agreement uses an active method of removal of contingencies.  Simply put, this means that the buyer must remove buyer’s contingencies in writing, or the contingency remains in place even after the time frame for the removal of contingencies has expired.  Too often, listing agents forget to have the contingencies removed when things are going well in a transaction.  This failure to have contingencies removed in a timely fashion can jeopardize seller’s ability to retain a deposit in the event that the buyer is unable to close an escrow.  For example, if the buyer never removes the buyer’s inspection contingency, the buyer can, according to the language contained in the Purchase Agreement, decide to cancel the escrow based upon disapproval of the inspection contingency at any time prior to the close of escrow.  In such event, the buyer would normally be entitled to the return of buyer’s deposit.  The burden of making sure that contingencies are removed in a timely manner falls upon the listing agent.

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